When you take out a mortgage loan you will need to repay:
- The capital (the amount that you borrowed as a mortgage loan)
- The interest on the loan, charged by the mortgage lender
An interest-only mortgage means your monthly repayments only pay off the interest part of your mortgage, not the capital. At the end of the mortgage term you will still have to pay off the original loan amount.
How interest-only mortgages work
Because you’re only paying the interest accrued on the loan and not the capital, your monthly repayments will be lower than with a repayment mortgage.
If you decide to get an interest-only mortgage, it is vital to have a repayment plan in place for when the term is over – otherwise you could lose your home.
To qualify for an interest-only mortgage you’ll need to demonstrate to your lender that you have a repayment plan in place and will be able to pay off the loan amount once the term is over.
Lending criteria for interest-only mortgages are usually much tighter than for a repayment mortgage. Your lender will probably do extensive affordability checks, and may require a bigger deposit.
Compare interest-only mortgages
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